Advertisement

Simple and Near-Optimal Mechanisms for Market Intermediation

  • Rad Niazadeh
  • Yang Yuan
  • Robert Kleinberg
Part of the Lecture Notes in Computer Science book series (LNCS, volume 8877)

Abstract

A prevalent market structure in the Internet economy consists of buyers and sellers connected by a platform (such as Amazon or eBay) that acts as an intermediary and keeps a share of the revenue of each transaction. While the optimal mechanism that maximizes the intermediary’s profit in such a setting may be quite complicated, the mechanisms observed in reality are generally much simpler, e.g., applying an affine function to the price of the transaction as the intermediary’s fee. [7, 8] initiated the study of such fee-setting mechanisms in two-sided markets, and we continue this investigation by addressing the question of when an affine fee schedule is approximately optimal for worst-case seller distribution. On one hand our work supplies non-trivial sufficient conditions on the buyer side (i.e. linearity of marginal revenue function, or MHR property of value and value minus cost distributions) under which an affine fee schedule can obtain a constant fraction of the intermediary’s optimal profit for all seller distributions. On the other hand we complement our result by showing that proper affine fee-setting mechanisms (e.g. those used in eBay and Amazon selling plans) are unable to extract a constant fraction of optimal profit in the worst-case seller distribution. As subsidiary results we also show there exists a constant gap between maximum surplus and maximum revenue under the aforementioned conditions. Most of the mechanisms that we propose are also prior-independent with respect to the seller, which signifies the practical implications of our result.

Keywords

Generalize Pareto Distribution Constant Approximation Optimal Mechanism Monopoly Price Linear Contract 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. 1.
    Bulow, J., Klemperer, P.: Auctions vs. negotiations. Working Paper 4608, National Bureau of Economic Research (January 1994)Google Scholar
  2. 2.
    Carroll, G.: Robustness and linear contracts. Working paper, Stanford University (2013)Google Scholar
  3. 3.
    Deng, X., Goldberg, P., Tang, B., Zhang, J.: Revenue maximization in a bayesian double auction market. In: Chao, K.-M., Hsu, T.-S., Lee, D.-T. (eds.) ISAAC 2012. LNCS, vol. 7676, pp. 690–699. Springer, Heidelberg (2012)CrossRefGoogle Scholar
  4. 4.
    Dhangwatnotai, P., Roughgarden, T., Yan, Q.: Revenue maximization with a single sample. In: Proceedings of the 11th ACM Conference on Electronic Commerce, EC 2010, pp. 129–138 (2010)Google Scholar
  5. 5.
    Hartline, J.D., Roughgarden, T.: Simple versus optimal mechanisms. In: Proceedings of the 10th ACM Conference on Electronic Commerce, EC 2009, pp. 225–234. ACM, New York (2009)Google Scholar
  6. 6.
    Jain, K., Wilkens, C.A.: ebay’s market intermediation problem. CoRR, abs/1209.5348 (2012)Google Scholar
  7. 7.
    Loertscher, S., Niedermayer, A.: When is seller price setting with linear fees optimal for intermediaries? Working paper (2007), http://www.vwl.unibe.ch/papers/dp/dp0706.pdf
  8. 8.
    Loertscher, S., Niedermayer, A.: Fee-setting mechanisms: On optimal pricing by intermediaries and indirect taxation, Working paper (2013), http://andras.niedermayer.ch/uploads/File/LN2013-10-10.pdf
  9. 9.
    Myerson, R.B.: Optimal auction design. Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science (December 1978)Google Scholar
  10. 10.
    Myerson, R.B., Satterthwaite, M.A.: Efficient mechanisms for bilateral trading. Journal of Economic Theory 29(2), 265–281 (1983)CrossRefzbMATHMathSciNetGoogle Scholar
  11. 11.
    Pal, D., Bose, A., Sappington, D.: On the performance of linear contracts. University of Cincinnati, economics working papers series, Department of Economics (2007)Google Scholar

Copyright information

© Springer International Publishing Switzerland 2014

Authors and Affiliations

  • Rad Niazadeh
    • 1
  • Yang Yuan
    • 1
  • Robert Kleinberg
    • 1
  1. 1.Department of Computer ScienceCornell UniversityIthacaUSA

Personalised recommendations